PBS



Parent Income: what to know

Howard and Matthew Greene

If you have a dependent child requesting financial aid for college, you will be required to furnish data on financial aid applications about your income. That includes current income as well as tax returns showing the previous full year’s income. Parent income is one of the biggest determinants of the need-based financial aid calculations made from the FAFSA and PROFILE forms. Parent income is also considered by some financial aid officers when they make individual judgments about how much aid to award a student. Even if your family is not applying for need-based financial aid, your income as a parent is an important factor as you consider how you will pay for college.

If you have not put a lot of money away for college, then you will likely need to fund a large proportion of college costs through current earnings. That is true even if you take out a home equity line of credit, for example, because you will need to pay interest on the money you borrow. If you take out other types of loans, such as a PLUS loan, you will need to repay that money through current and future income. The Expected Family Contribution (EFC) calculations made when you apply for need-based financial aid set out an estimation of what is considered a reasonable amount for parents to pay toward college, while taking into account your need to put money away for retirement, protect some of your assets, pay for other students in college, and cover essential costs of living.

Some families get caught up in a game of trying to rework their income to manipulate the financial aid process. We don’t recommend this route. Hiding income, filing for unemployment, taking a lower-paying job, and other ways of seeking to affect your EFC calculations seem not only unethical and unfair to truly needy students, but mistaken uses of your time and energy. When you have significant hardships that are not evident in your income or tax statements, or changes in your family finances due to loss of a job, a health crisis, or another unforeseen circumstance, your best option is to contact financial aid offices directly and forthrightly. Financial aid officers are counselors who can help you find additional sources of aid, and perhaps recalculate your aid award. This is especially true as your child goes into his or her later years of college and your overall family circumstances change. Another child may enter college, your work may slow down, your savings may be eroded, or you may move farther away from campus and incur higher travel costs to and from school. In each case, you should work the financial aid office of the college as early in the year as possible to open up more funds.

The best way to lower the amount of parent income necessary to fund college is to put away some of that income into savings well before college begins. Otherwise, you are likely to find yourself and your child taking on a larger amount of loan debt to cover college costs.

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